If you are thinking about starting a business, you are certainly not alone. According to recent studies, 37.3% of people said that the pandemic boosted their interest in controlling their destinies through business ownership. Also, Silicon Valley Bank launched a survey finding that 32.9% of respondents strongly agree that now is an excellent time to start a business.
Despite the challenges posed by the pandemic, it is a desirable time to start a business. However, creating the company is only half the battle. Once you’ve established your business, you’ll need to consider how to fund it.
Many funding options are available today, but not all will be right for your startup. Before you begin raising capital, it’s essential to do your research and understand the costs associated with starting and running your business. Only then can you begin to develop a funding strategy that makes sense for your specific needs.
This article will provide an overview of 10 different funding options for businesses. From traditional loans to crowdfunding and government grants, we’ll cover all the bases so you can make an informed decision about how to finance your startup.
Evaluate your business and its needs
Any business, large or small, must periodically evaluate its needs to continue achieving its goals. This evaluation process allows a company to identify areas lacking and develop plans to address those deficiencies. Start by taking a closer look at your business and determine what kind of funding it will need.
Do you need money for short-term expenses like inventory or marketing? Or are you looking for long-term capital to help with expansion or research and development? Once you have a better idea of the type of funding, you can start thinking about how much money you’ll need to request.
Additionally, by taking stock of its current situation, a business can adjust its operations as necessary to ensure that it remains efficient and effective. The specific needs of a company will vary depending on its size, industry, and stage of development.
However, some common factors that startups should consider during a business evaluation include financial stability, customer satisfaction levels, employee morale, and market trends. By carefully evaluating all of these areas, a business can ensure that it is positioned for continued success.
Questions to Ask When Seeking Funding
- Who are your target customers?
- How will you generate revenue?
- What are your expenses?
- How much money are you looking to raise?
- How will you use the funds?
- What is your exit strategy?
Answering these questions honestly and thoroughly will give potential investors the information they need to make an informed decision about whether or not to invest in your startup. It will also show them that you clearly understand your business and its needs, which is essential in gaining their trust.
Research potential types of funding available to you
There are a variety of ways to obtain funding for research projects. It is crucial to consider the type of project, the target audience, and the amount of money needed. Below are ten different ways to obtain funding for your company:
Bootstrapping
Bootstrapping means funding your business through personal savings, credit cards, or loans. This can be a great option if you want to keep your company equity and secure funding from other sources. However, ensuring a solid plan is vital before taking on any debt.
Venture Capital
Venture capital firms typically invest in companies that are too small to attract the attention of more prominent institutional investors, such as banks or insurance companies. The primary benefit of venture capital funding is that it allows startups to grow quickly without relying on debt financing, which can be challenging to obtain on favorable terms.
Another study by Silicon Valley Bank found that 42% of startups in the US, UK, and Canada had venture capital as their primary funding source. While venture capital can be a great way to fuel rapid growth, it is essential to remember that venture capitalists typically want a significant share of ownership in the company in exchange for their investment. As a result, founders should carefully consider whether venture capital is the right choice for their business before pursuing this type of funding.
Angel Investing
Angel investment is similar to venture capital, but they are usually individuals rather than firms. Like venture capitalists, angel investors provide funding in exchange for equity in your company. Angel investors may also offer advice and mentorship, but they typically invest smaller money than venture capitalists.
Crowdfunding
Crowdfunding is financing your business by raising small amounts of money from a large number of people. Platforms like Kickstarter and Indiegogo allow people to donate money to companies or projects they believe in. In return, donors typically receive rewards like merchandise or early access to products/services.
Small Business Loans
If you’re starting a small business, you may be able to get a loan from the Small Business Administration (SBA). The SBA is a federal organization that provides financial assistance to small businesses. SBA loans tend to have lower interest rates and longer repayment terms than traditional bank loans, making them a good option for small businesses.
According to Forbes, entrepreneurs are more likely to have their loan requests approved by a small local bank than by a large bank. Small banks approve 48.7% of loan requests, while large banks approve only 23%. This is likely because small banks are more familiar with the needs of small businesses and are, therefore, more likely to understand and support the goals of entrepreneurs.
Loans can also be significantly cheaper than equity financing, especially when the startup is still in its growth phase. Therefore, for many entrepreneurs, a small business loan can be an ideal way to get the funding they need to get their business up and running.
Small Business Grants
SBA grants are partially guaranteed by the government, which makes them easier to qualify for than traditional bank loans. However, they typically come with strict requirements such as collateral and monthly reporting, so make sure you’re prepared before applying for an SBA loan.
For more information on this specific type of funding, please see our latest article on how small businesses and startups can receive grants as their primary funding source. (Maybe we can link our article on the Grants to this section once it’s published?)
A Business Line of Credit or a Business Credit Card
A business line of credit is a loan that allows you to borrow money up to a specific limit. You only pay interest on the money you borrow, and you can typically withdraw funds as needed. This can be a great option if you need flexible funding for your business.
Another option is to obtain a business credit card. This can be beneficial for several reasons. First, it can give you access to additional funding. If you have a good personal credit score, you can qualify for a business credit card with a high limit, giving you the extra funds you need to get your business off the ground.
Also, using a business credit card can help you build up your business credit history. This can be valuable if you eventually decide to apply for a small business loan, as lenders will be able to see that you have a history of making timely payments on your debts.
Some good credit cards to keep an eye out for include: (insert credit card links here)
Microlenders
Microlenders are financial institutions that provide small loans to businesses and entrepreneurs. These loans are often used to start or grow a business and can be an excellent source of funding for startups or small businesses. One primary advantage of microlending is that it allows companies to access the capital they might not otherwise be able to obtain.
Additionally, microloans tend to have lower interest rates than traditional bank loans, making them more affordable. And because microlenders typically work with many small businesses, they often have a better understanding of the challenges and opportunities that these businesses face. As a result, microlending can be a great way to get the financing you need to grow your business.
Friends and family
Depending on your relationship with them, friends and family may be a good source of funding for your business. They may be willing to invest in your idea because they believe in you and want to see you succeed. However, it’s important to remember that taking money from friends and family can strain relationships, so make sure you think long and hard before going down this route.
Accelerator and Incubator Programs
Accelerators and incubators are programs designed to help new businesses grow and succeed. These programs often offer mentorship, resources, and initial funding for companies in exchange for equity. Applying to these programs can be competitive, so make sure your business idea is well-developed before applying.
For example, M Accelerator has helped over 350 founders launch their businesses. Our online accelerator program provides live coaching sessions, mentorship, and coursework in business, marketing, pitching, and growth hacking to help entrepreneurs from beginning to end in establishing their businesses.
In addition, our program offers access to a global community of startup founders and investors. If you’re interested in joining this program, please visit our website and apply or reach out today. With our help, you can confidently launch your business and grow it into a successful enterprise.
How to prepare your business for funding opportunities
1. Understand Your Numbers
One of the first things potential investors will want is a clear understanding of your business numbers. This includes your revenues, expenses, and profit margins. You’ll need to put together a well-organized financial statement to get a handle on your numbers. This will give you a clear picture of your current financial situation and help you project future costs and earnings.
2. Know Your Target market
Another vital area to focus on is your target market. When preparing for funding, you’ll need to articulate clearly who your target market is and why potential customers would be interested in your product or service.
To do this, start by conducting market research and creating buyer personas. This will give you a solid understanding of your target market’s needs, wants, and pain points. With this information in hand, you’ll be able to craft a strong value proposition that resonates with your target audience.
3. Understand Your Competitive Landscape
Another essential thing to know before seeking funding is who your competitors are and what they’re up to. This will help you craft a competitive analysis that you can use to position your business against them. This is an integral part of developing your marketing strategy and will give potential investors confidence that you know what you’re doing.
4. Create a Solid Business Plan
Investors want to see that you have a clear plan for using their money to grow your business. This means having a well-written and detailed business plan that outlines your marketing strategy, sales forecast, and growth projections.
5. Build a Strong Team
Last but not least, investors will also want to see that you have assembled a strong team of experts who can help execute your business plan and achieve your desired results. This includes creating a rock-solid board of directors or advisors who can provide valuable insights and guidance. Having the right mix of skills and experience on your executive team is also essential. Having a team in place that investors can feel confident in will go a long way in securing the funding you need.
The risks and rewards of receiving funding
A common question that small businesses and startups ask is whether or not they should seek funding from investors. This decision has pros and cons, and it’s helpful to be aware of the risks and rewards before deciding.
On the one hand, receiving funding can help you get your business off the ground or take it to the next level. Access to capital can help you hire employees, buy inventory, or lease office space. On the other hand, giving up equity in your company can be risky. You may lose some control over how your business is run, and you may have to give up a more significant portion of your profits down the line.
The key is to carefully weigh the risks and rewards before deciding. Some common risks associated with receiving funding include:
- Owing Money to People: Like any loan, you’ll have to pay that money back with interest. If things don’t go as planned and your business doesn’t make enough money to pay back your investors, you could be in serious financial trouble. But, having the funding to begin with could bring lots of rewards for that its often worth it.
- Losing Control of Your Business: One of the most significant risks of taking on investors is that you may lose control of your business. If you’re not careful about whom you take money from, you could end up with an investor who has a lot of say in how your business is run—and that’s not always a good thing.
- The Pressure to Perform: Another risk involved with receiving funding is the pressure to perform. When you have people investing money in your business, they’ll naturally want to see a return on their investment. There will be additional pressure to ensure your business is booming. While this pressure can motivate some people, it can also be very stressful—and even lead to burnout.
The rewards side of funding may look like this:
- Access to More Resources: One of the most significant rewards of taking on investors is giving you access to more financial and otherwise resources. With more money for marketing and product development, you’ll have a better chance of making your business successful. In addition, many investors also have valuable networks they can introduce you to, which can help you take your business to the next level.
- Increased Credibility: A significant benefit of attracting investors is that it can help improve the credibility of your business—both with customers and other businesses alike. When potential customers see that people are willing to invest money in your company, they’ll be more likely to do business with you because it shows that you’re a serious and viable option in whatever market you’re competing in
- The Ability to Grow and Scale: One of the main reasons people seek out investors is because it allows them to grow and scale their businesses much faster than they could on their own. With more money to invest in your business, you’ll be able to hire more employees, open new locations, or develop new products and services much faster than if you were relying solely on your finances.
Final thoughts
Given the current state of the economy, entrepreneurs must be proactive in seeking funding opportunities for their businesses. As the article discusses, there are many ways to fund your business.
However, starting a business is a huge undertaking, and ensuring you have the financial resources to get your venture off the ground is essential. There are several ways to fund a business, from taking out loans to seeking investment from venture capitalists. That said, validating your concept is critical before spending thousands of dollars on your business. Luckily, M Accelerator’s membership program can help you do just that. For more information on how to get started, please click here.
